Base Cost

He writes as follows: Nadia De Kock's article about Para 51A of 8th schedule to the Income Tax Act transfers in GhostDigest (Draft SARS Guide II) is very interesting and helpful and I suggest that the provisions of Para 51A with regard to base cost (as quoted from the Guide) are significant only in relation to the tax implications when the natural person acquirer of the property sells the property. This is because at the time of the disposal of the property to the acquirer the base cost has no significance. It is not in any way related to any of the conditions imposed that determine whether the disposal will result in the desired tax exemptions provided for in the legislation. The base cost is to be determined at the time of the ultimate disposal and neither SARS nor the Deeds Office need to place any reliance on it at the time of the disposal and transfer to the acquirer in terms of Para 51A. The base cost is therefore not the conveyancer's concern.

The conveyancer, at the time of disposal, does have to disclose a value of the property though, for 2 reasons. Firstly the Deeds Office will insist on this for the completion of the "consideration clause" so that the Registrar may determine what fees he has to charge, and secondly of no less importance, the conveyancer will want to rely on that value for the purpose of determining the fees payable by the client. In the end it will probably be an agreed fee but it has to have some basis.

I suggest that the amount that should be disclosed in the agreement of disposal (NOT SALE) and in the transfer duty declarations, should be either the market value of the property or the municipal value which is more easily obtainable. The conveyancer must make it very clear that the disposal agreement is not a sale agreement but an agreement of disposal in order to reap the benefits of Para 51A.

If conveyancers start trying to record the base cost in the agreement of disposal (and there must be a written agreement in order to comply with the requirements of the Alienation of Land Act) then they will be launching into very dangerous waters for which they will in time neither receive nor deserve any thanks. The base cost can, in many instances, be very difficult and complicated to ascertain and since it is not a requirement for obtaining the desired tax consequences but is a factor in determining whether any Capital Gains Tax is payable on disposal by the natural person acquirer, conveyancers should not concern themselves with this aspect. It is a matter for accountants and tax advisers at a different time and venue.

I have registered a number of Para 51 transfers and in each case have expressly used the Municipal valuation of the properties. I can therefore see no reason for adopting any other procedure for Para 51A matters. SARS have never queried this and can have no grounds for doing so as they cannot be affected in any way by the value that is disclosed in the Deed of Alienation.

Donald Moore
Guthrie and Rushton

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